(Reuters) - Activist investor William Ackman's Pershing Square and Valeant Pharmaceuticals on Friday decided to pay $290 million to settle a lawsuit that accused them of insider trading before bidding for Allergan Plc in 2014.

Pershing Square said it decided to raise its share of the settlement to 66.8 percent, or $193.75 million, in a bid to quickly wind up the litigation, which it claimed had "no merit".

"We decided, however, that it was in the best interest of our investors to settle the case now instead of continuing to spend substantial time and resources pursuing the litigation," said Pershing Square CEO Bill Ackman.

The hedge fund said Valeant will now pay around 33 percent, or $96.25 million, of the settlement costs. Valeant had previously agreed to pay 60 percent of the costs.

"We believe this agreement to resolve the legacy litigation is in the best interests of the Company, because it enables us to focus our attention and resources on the transformation of Valeant," said Valeant's Chief Executive Joseph Papa.

Papa, who took over the reins of Valeant in April 2016, has been trying to reshape the company and regain investor confidence, after a flurry of investigations into the Canadian drugmaker's accounting and pricing practices hit its shares.

The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before Pershing Square Capital Management and Valeant made an unsolicited $51 billion bid for Allergan. http://reut.rs/2DwW6XN

Actavis Plc eventually bought Allergan in 2015, taking its name.

Both Pershing Square and Valeant did not immediately respond to emails seeking comments.

(Reporting by Manas Mishra in Bengaluru; Editing by Maju Samuel and Arun Koyyur)